Republicans in Congress passed a tax overhaul bill in December 2017, which was signed by President Donald Trump. That law affects the taxes of many Americans, among whom are those who pay and receive alimony.
The new tax law removes several itemized deductions, including the deduction of alimony payments. This means that those who pay alimony will no longer be able to deduct those payments from their taxable income. Those who receive alimony, however, will now be able to deduct that income from their taxes.
Alimony to be treated like child support
The rationale behind this decision is that an alimony deduction is a “divorce subsidy,” according to the Ways and Means Committee. The panel argued that alimony should be treated like child support, which is not tax-deductible for the payer but is for the recipient.
The new law returns alimony payments back to their pre-1942 state. In a 1917 decision, the Supreme Court ruled in Gould v. Gould that alimony payments were not taxable income for recipients. The Revenue Tax Act of 1942 overturned that decision, allowing alimony payers to deduct payments.
How does this affect me?
If your divorce has already been finalized or will be finalized by December 31, 2018, alimony payments will be treated as they have been – if you are the payer you can deduct them from taxes, and if you are the recipient you cannot. If your divorce is finalized in 2019, the inverse is true. How alimony payments are determined is still based on Georgia law.
If you are considering a divorce this year, you can talk to a family law attorney about whether or not alimony will be a part of the proceedings and how they will affect your taxes.